Golden Entertainment Could Glitter with Regional Catalysts, Strat Renovation

Posted on: February 3, 2020, 09:38h. 

Last updated on: July 5, 2021, 01:29h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Golden Entertainment, Inc. (NASDAQ:GDEN) are enjoying a nice start to the week, residing higher by five percent in midday trading That’s after an analyst raised his price target on the stock while noting investors may not be fully appreciating the company’s story.

The Strat is a catalyst for Golden Entertainment stock, but there’s more to the story. (Image: Las Vegas Review-Journal)

In a note released to clients earlier today, Union Gaming analyst John DeCree reiterated a “buy” rating on Golden stock, while lifting his price forecast to $26 from $23. The shares trade around $18 at this writing, meaning DeCree’s estimate implies upside of more than 44 percent.

The market is not appreciating the true free cash flow (FCF) capabilities of the portfolio this year,” said the analyst. “We are forecasting $103m of Discretionary FCF, which implies a current FCF yield of 22%.”

Las Vegas-based Golden operates 10 casinos, the crown jewel of which is The Strat, formerly known as The Stratosphere, on the north end of the Las Vegas Strip. The company has spent $100 million rehabbing that property and is expected to soon complete that refurbishment.

Altering The Strat Experience

Golden Entertainment acquired the venue in late 2017 and commenced the renovation project in mid-2018. Historically, Strat has been known for its thrill rides – The SkyJump, the Big Shot, X Scream, and Insanity – and the Top of the World Restaurant. The dining establishment is famous for rotating every 360 degrees every 80 minutes, providing patrons with some of the best views of Sin City.

Those, however, aren’t gaming attractions, and Golden, led by CEO Blake Sartini, is looking to keep more visitors to the Strat’s rides and Top of the World on the property to hit the tables and slots. In addition to a revamped gaming area, the renovated Strat features a massive new sportsbook operated by William Hill.

Beyond the Strat, Golden operates nine casinos, eight of which are in Nevada. The company’s PT’s Entertainment unit runs more than 60 bars, pubs, and casual dining restaurants.

Other Reasons to Like the Stock

Beyond the Strat, DeCree sees other catalysts for Golden Entertainment equity, including management’s efforts to bolster the balance sheet.

“We are also forecasting net leverage to drop from 5.6x LTM to 4.8x by year-end 2020 with a modest 6.3% year-over-year earnings before interest, taxes, depreciation and amortization (EBITDA) growth estimate, including claw back from disruption at the Strat, incremental EBITDA from the renovations, a favorable events calendar in Las Vegas, and low-single-digit trends in Las Vegas Locals,” said the analyst.

Of the five analysts covering Golden, four have very bullish ratings on the name, while the other has the equivalent of a “buy” rating.

While there’s obvious enthusiasm for the name, DeCree’s $26 price estimate on the stock is well above the Wall Street consensus of $22.40.